Re:Report on the feasibility of requiring transmission and distribution utilities to
transfer the administration of contracts associated with prior conservation
efforts to the Commission

Dear Senator Hall and Representative Bliss:

Section 8 of P.L. 2001 ch. 624 requires
the Public Utilities Commission to report to the Utilities and Energy Committee
on the feasibility of our agency assuming responsibility for administering
contracts for energy efficiency services entered into by electric utilities
prior to the restructuring of the industry.We have not yet concluded our analysis of some of the complicated legal
and structural issues posed by this question and cannot advise you on the
feasibility of our assuming responsibility for the contracts until additional
questions are resolved.

We are providing this interim report to describe actions we have taken
to comply with the Legislature’s directive to examine the feasibility of
requiring the transfer of contracts associated with prior conservation efforts
to the Commission.

Background:The Conservation Act (the Act) enacted in
2002 (P.L. 2001, ch. 624), transferred authority to develop conservation
programs from the State Planning Office (SPO) and the authority to implement
the programs from the T&D utilities to the Commission.The Act was an attempt to remedy an
ineffective arr angement for the administration of efficiency programs left
over from electric industry restructuring which created a three-way split in
the responsibility for the administration of those programs.Industry restructuring directed responsibility
for program planning to the SPO, responsibility for implementation remained
with the State’s restructured electric companies, and responsibility for
overall oversight resided with the Commission.The legislature and most stakeholders were dissatisfied with this
structure after two years of experience, and attempted to resolve the problems
through the Conservation Act.Under the
new Act, the Commission must establish objectives and an overall energy strategy
for conservation programs (i.e. a plan), and implement programs consistent with
those goals and objectives.

The Act did not resolve all structural issues regarding efficiency
programs.Prior to industry
restructuring, some utilities entered into contracts for periods of up to 20
years with energy service companies to install conservation measures for the
benefit of utility customers[1].In
its development of the Act, the Legislature addressed transition issues that
might arise in the shift to Commission-sponsored conservation programs.The expenses associated with “prior
conservation efforts,” or programs that utilities sponsored prior to March 1,
2002, are included as a cost of the overall State-wide program effort
implemented by the Commission.35-A
M.R.S.A. § 3211-A(1)(E) and (4).The Act
also provides that,

[e]xcept as
otherwise directed by the Commission, transmission and distribution utilities
shall continue to administer contracts associated with prior conservation
efforts.Such contracts may not be
renewed, extended or otherwise modified by transmission and distribution
utilities in a manner that results in any increased expenditures associated
with those contracts.

35-A M.R.S.A. §
3211-A(7).

In the Conservation Act, the Legislature addressed the issue of contract
administration by directing the Commission to examine the feasibility of
assuming administration of the contracts.

The Public Utilities Commission shall
examine the feasibility of requiring transmission and distribution utilities to
transfer the administration of contracts associated with prior conservation
efforts to the commission.The
commission shall report its findings and recommendations to the joint standing
committee of the legislature having jurisdiction over utilities and energy
matters no later than January 1, 2004.The joint standing committee of the legislature having jurisdiction over
utilities and energy matters may report out legislation to the 121st
Legislature relating to the administration of contracts associated with prior
conservation efforts.

Section 8.35-A M.R.S.A. §3211.

Actions Taken to Date:In response to the Legislature’s directive,
we issued a Notice of Investigation on August 5, 2003,“Investigation of the Administration of
T&D Contracts Associated with Prior Conservation Efforts,” Docket No.
2003-544.An initial case conference
was held on September 4, 2003 at the Commission offices, and discovery on the
questions of contract administration was conducted.Information gathered thus far in our investigation is summarized
below.

·Only two of
Maine’s T&D utilities have pre-existing contractual obligations to pay for
efficiency measures installed prior to the enactment of the Conservation Act.

·Bangor
Hydro-Electric (BHE) Company has one remaining contract with an energy service
company that concludes with a final payout in 2007.This contract was for the delivery of energy efficiency services
to residential customers.BHE’s
administrative responsibilities under the contract require it to confirm
individual residential customer meter data through an examination of customer
accounts.This is done through the use
of customized software.BHE administers
the contracts through a company employee who is familiar with the contract and
the software used in the billing procedure.BHE reports that this activity requires approximately 6% of the
individual’s time.

·Central Maine
Power (CMP) Company has twenty-seven remaining Power Partners Contracts with
three corporate entities and twelve Contracted Rebates direct with the end-use
customers.The contracts all have
different lengths, payout schedules and contractual obligations, but the last
payout occurs in 2012.Unlike the BHE
contract, there is no requirement under CMP’s contracts to confirm individual
customer meter data or accounts.CMP
has assigned two employees to administer these contracts.Approximately 20% of one individual’s time
is spent administering the Power Partners Contracts.Time spent administering the Contracted Rebates by the second
individual is reported as one hour per year.CMP has also contracted with an energy auditor to verify that measures
installed under the Power Partners Contract remain in place and are operating
properly.

·The individual
who was formerly responsible for providing technical assistance on the
Contracted Rebates and the administration of CMP’s Power Partners Contracts is
now employed at the Commission.

·Neither BHE
nor CMP is involved in the procurement of energy for customers and but for the
contracts described above, neither is significantly involved in the delivery of
energy efficiency services.

·Neither
company receives any financial return for contract management.

·The Commission
staff has concluded that there is little or no business justification for the
contract administration to remain the responsibility of delivery companies.

Rather than making a formal recommendation to the Legislature at this
time, the Commission staff is in the process of attempting to negotiate the
resolution of the issues by proposing that the Commission assume responsibility
for contract administration.Such an
approach would resolve the remaining structural problems, clarify
responsibility for overall program administration, and simplify the planning
and administration of other programs.A
conceptual proposal was issued to the parties to the investigation proceeding
on December 17th, and discussions on the proposal will follow.

We will begin discussion with the
parties as soon as possible.Through
the discussions we will attempt to resolve any lingering factual and legal
disputes and in so doing arrive at a negotiated resolution of the issue.If it is not possible to reach a negotiated
solution, we will provide the Committee with our recommendations before the end
of the session.

Sincerely,

Maine
Public Utilities Commission

Thomas
L. Welch, Chairman

Stephen
L. Diamond, Commissioner

Sharon
M. Reishus, Commissioner

cc:Utilities
and Energy Committee Members

Jon Clark,
Legislative Analyst

[1] Though not
individually approved by the Commission, these contracts were entered into
subject to Commission review.